Reading

1.Read text 28. How much of the information did your group already know?

TEXT 28

AVERAGE AND MARGINAL PRODUCT

Average and marginal product are obtained from the production function and may be viewed merely as different ways of looking at the same information. The average product of labouris the total product divided by the number of workers,

AP= Q/L

in this example, average product, shown in column 3 (Table 4.2.), first rises, reaches a maximum at 56.7, then declined thereafter.

The marginal product of labour (MP) is the additional output attributable to using one additional worker with the use of all other inputs fixed (in this case at two units of capital). That is,

MP=∆Q/∆L

where Д means "the change in." The marginal product schedule associated with the production function in Table 4.2 is shown in column 4 of the table. Because no output can be produced with zero workers, the first worker adds 52 units of output; the second adds 60 units (that is, increases output from 52 to 112), and so on. Note that increasing the amount of labour from 9 to 10 actually decreases output from 318 to 314. Thus the marginal product of the 10^th worker is negative. In this example, marginal product first increases as the amount of labour increases, then decreases, and finally becomes negative. This is a pattern frequently assumed in economic analysis.

In this example, the production function assumes that labour, the variable input, is increased one worker at a time. But we can think of the marginal product of an input when more that one unit is added. At fixed level of capital, suppose that 20 units of labour can produce 100 units of output, and 30 units of labour can produce 200 units of output. In this case, output increases by 100 units as labour increases by 10. Thus

MP = ∆Q/∆L = 100/10 = 10

output increases by 10 units for each additional worker hired.

We might emphasize that we speak of the marginal product of labour, not the marginal product of a particular laborer. We assume that all workers are the same, in the sense that if we reduce the number of workers from 8 to 7 in Table 4.2, total product falls from 314 to 304 regardless of which of the eight workers is released. Thus the order of hiring makes no difference; a third worker adds 58 units of output no matter who is hired.

2. Comprehension check.

Are the following statements true or false? Correct the false ones.

a) The marginal product of labour is achieved by using one additional worker with the use of all other inputs fixed.

b) According to table 4.2 the 4^th worker adds 28 units of output.

c) Adding the 10^th worker increases marginal product by 4 units.

d) According to the text the order of hiring doesn't influence on marginal product.

3. Read the text once again. Find words in the text that mean the same as the following.

a) medium e) to increase i) production

b) to take f) to decrease j) to cut down

c) data g) employer k) to engage

d) quantity h) sum 1) piece